Hong Kong, China shares slip as inflation accelerates

Fri Jan 11, 2013 4:42am GMT

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* HSI, HSCE -0.1 pct, CSI300 -0.4 pct

* Higher-than-expected inflation tempers China easing hopes

* Profit taking hits Chinese property shares

* China autos strong, 2013 improvement expected

By Clement Tan

HONG KONG, Jan 11 (Reuters) - Mainland China shares reversed gains on Friday, dragging Hong Kong into the red after December inflation data came in higher than expected, raising concerns that Beijing may have less leeway for monetary easing to nurse a recovery in economic growth.

China's annual consumer inflation rate accelerated to a seven-month high of 2.5 percent in December on rising food prices, surpassing a 2.3 percent Reuters poll consensus -- although analysts say inflation will stay benign for 2013.

The Hang Seng Index went into the midday trading break down 0.1 percent, with the China Enterprises Index of the top Chinese listings in Hong Kong also slipping 0.1 percent. On the week, they are now flat and down 0.2 percent, respectively.

The CSI300 of the top Shanghai and Shenzhen listings fell 0.4 percent, while the Shanghai Composite Index was down 0.5 percent. On the week, they are now each down 0.1 and 0.2 percent.

"It's not the end of the world. We have been trending in overbought territory for more than a week anyway, so this higher headline inflation is a trigger for some profit taking. We are in a consolidation phase," said Hong Hao, Bank of Communication International's chief equity strategist.

"I won't worry too much about the higher inflation data, since much of it is down to rising food prices and extreme winter weather. But today's data hurt some expectations for a cut in interest rates or bank reserve requirements in the first half of the year," Hong added.

Before the inflation data was released on Friday, the official China Securities Journal reported that the central bank may cut benchmark interest rates once and cut the required reserve ratio once or twice in the first half of 2013 in a bid to lower corporate finance costs.

Beijing will target 8.5 trillion yuan ($1.37 trillion) in new local-currency loans in 2013 and 13 percent annual growth in the broad money supply (M2), the same paper reported, citing anonymous regulatory sources.

Chinese property shares, having continued last year's strong showing, were a standout underperformer among sectors in the onshore market, with the Shanghai property sub-index down 2.1 percent.

Poly Real Estate shed 2.8 percent in Shanghai, cutting gains since the start of the year to 1.3 percent. Poly surged 63.2 percent in 2012, outperforming the 7.6 percent rise for the CSI300.

In Hong Kong, China Resources Land, which had jumped 8.3 percent in 2013 before Friday after surging 69 percent in 2012, slid 2.2 percent to its lowest since Dec. 31.

Smaller Chinese developers listed in Hong Kong saw bigger percentage losses having outperformed the sector last week and earlier this week after several of them tapped the credit market to raise funds, improving their balance sheets without diluting equity stakes.

Kaisa Group and Country Garden, among the first to tap the credit market this year, dived 4.1 and 3.8 percent on Friday.

Home prices have risen in four of the last five months before December in the mainland. December's larger-than-expected headline inflation stoked concerns that Beijing will enforce more stringently existing curbs on property developers to dampen home prices.

December home prices data is expected on Jan. 18, when monthly industrial output, urban investment, retails sales and fourth-quarter China GDP data will also be released.

CHINA AUTOS BUCK MARKET WEAKNESS

Most of the Chinese auto sector bucked broader market weakness. Great Wall Motor jumped 4.7 percent in Hong Kong and 3.2 percent in Shanghai.

Citing data from China Auto Market, Goldman Sachs analysts said Chinese auto brands achieved 33.3 percent market share in December, the highest monthly figure in 2012, helped in part by a steady improvement in brand image and quality.

China's largest private auto manufacturer Geely Auto rose 1.5 percent in Hong Kong after the company said it sold a record number of cars in December. It also aimed to sell 15 percent more cars in 2013, compared to the year before.

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